Analysis of current economic conditions and policy

Guest Contribution: “Don’t Look to Congress for a Solution to the Nation’s Long-Term Transportation Woes”

Allowing Private Sector Innovation Holds the Most Promise, if Government Doesn’t Impede Progress

Today we are fortunate to have a contribution written by Clifford Winston, Searle Freedom Trust Senior Fellow at the Brookings Institution. This post is based on a more extensive analysis available here.

Since 2005 Congress has not passed a long-term transportation bill and has instead engaged in political theatre about how to revive a wheezing Highway Trust Fund that is running a deficit. This embarrassing vaudeville act needs to be yanked off the stage with a cane because increasing government spending has not significantly improved infrastructure performance. Instead, implementing private sector technologies hold the most promise for improvements for the American traveler. Government can help by not impeding private sector efforts.

There is no “strategy” in the public sector’s decades-long history of increasing spending to build the nation’s way out of congestion and the public sector is unlikely to ever develop a sustainable strategy that could improve infrastructure performance. Accordingly, there are three ways that the private sector could help: purchase infrastructure facilities from the government and operate them more efficiently (privatization); develop technological innovations that the public sector could implement to improve current infrastructure performance; and make technological advances that greatly improve the operations of transportation modes that use the infrastructure.

All the options are promising, but outright privatization may be premature without experiments in the United States given the mixed experience with privatization in other countries. The best course of action is to rely on the private sector to develop technological advances in the major modes and for the government not to impede those advances. Policymakers have shown a decided lack of interest in implementing technological innovations to improve transportation. For example, they could encourage the use of technologies such as:

Weigh-in-motion capabilities to provide real-time information about truck weight and axle configurations to do away with weigh-stations and to set efficient pavement-wear charges, which would encourage truckers to shift to vehicles with more axles that do less damage to roads.

Governments also could apply adjustable-lane technologies and variable speed limits, adapting to traffic flows, and could set real-time tolls to encourage drivers to explore alternative routes, modes, and times of day to travel.

Efficiency in air travel could be enhanced through technologies such as heated runways, which would reduce delays caused by time-consuming manual snowplowing; advanced screening technologies, such as full-body scanners and biometrics, to speed security measures; and the adoption of a next-generation satellite-based air traffic control system known as NextGen.

Unfortunately, the government has a status quo bias, which impedes the adoption of new technologies and slows economic progress.

Fortunately, the private sector does not share this bias. In spite of public sector foot-dragging, the private sector continues to innovate in myriad ways, such as: automobile safety technological advances, including electronic stability control, warning and emergency braking systems, speed alerts, and mirrors with blind spot warnings; airlines have installed more powerful and efficient jet engines and are planning to incorporate improved wing designs to reduce fuel consumption.

Moreover, major innovations in the modes are on the horizon. There is no doubt that driverless cars and trucks can be operated effectively, gathering and reacting to real-time information about traffic conditions and eliminating human failings, such as distracted or impaired driving; digital communications and GPS could automate routine air traffic control measures; and drones could be used for commercial purposes—if the FAA would lift its ban on their use.

Those innovations and undoubtedly others could significantly improve the efficiency and safety of current infrastructure and significantly reduce the need for government to pass huge spending bills to expand transportation capacity.

Anything government does, can and will be done by private enterprise if 1) government doesn’t prohibit it and 2) there is a sufficient business proposition. Bridges to nowhere will not be built. Some “infrastructure” is just nice to have; e.g., parks. Disney will build entertainment parks, but the local green gathering place for families won’t happen unless they are part of larger developments. It’s all a matter of money. Those with money will pay for the “infrastructure” costs; those without the money will let government pay for those costs with the money received from those who will or can pay.

That doesn’t mean government should stay out of infrastructure development and maintenance. Even privately owned infrastructure can be regulated and standards set. It just seems that we take for granted that government should have more-or-less exclusivity for infrastructure control. That may not be the best choice in all circumstances. Private efforts will take ROI into consideration; governments probably will not.”

I took quite a bit of flak from Baffling and 2slugbaits because of the possibility of the business case for a development evaporating in mid-project. But from this post:

“Unfortunately, the government has a status quo bias, which impedes the adoption of new technologies and slows economic progress.

Fortunately, the private sector does not share this bias. In spite of public sector foot-dragging, the private sector continues to innovate in myriad ways, such as: automobile safety technological advances, including electronic stability control, warning and emergency braking systems, speed alerts, and mirrors with blind spot warnings; airlines have installed more powerful and efficient jet engines and are planning to incorporate improved wing designs to reduce fuel consumption.

Moreover, major innovations in the modes are on the horizon. There is no doubt that driverless cars and trucks can be operated effectively, gathering and reacting to real-time information about traffic conditions and eliminating human failings, such as distracted or impaired driving; digital communications and GPS could automate routine air traffic control measures; and drones could be used for commercial purposes—if the FAA would lift its ban on their use.”

America got rich, as every other nation who is rich got rich, by government intervention and support. The private market, in contrast to the public one, is timid and chronically underfunded. It will not put the level of assets at risk that are needed to produce national economic growth. Nor can it. The private market does not possess the institutions, all public, that are necessary for robust economic growth. What transportation we have is a product of public investment. Rree market fundamentalism espoused by this author has strangled the investment for the past three decades. This is why we suffer. We need more government, stronger government, government that is not indifferent, in order to return to prosperity.

Thanks for an interesting and thought-provoking post. I’ll comment on roads specifically but I think the principles I will advocate apply generally.

It’s certainly true that there is a host of new technologies being developed for roads. Some of it, such as the products created by Siemens traffic solutions, depends on adoption by governments. And some of it is independent of government–Google traffic and Google’s acquisition of the Israeli crowd sourcing software company Waze come to mind. The products that don’t depend on government adoption have a lot of promise. But why should we think that the technologies that are sold to governments can be adopted any faster? Why should we expect governments to encourage these technologies, given that they don’t seem to have much interest in promoting them?

It seems to me that that the problem is that governments and regulators have no serious incentive to introduce and promote these technologies. They have no profit motive and no competitive pressures. We can decry their status quo bias, but why should we expect anything different if we don’t fundamentally change their incentives? In my view, we need somewhat radical policy actions to change these incentives, which would include the following elements:

1) We need to seriously deregulate the system so as the reduce the power of the political and regulatory process to influence the construction of roads. Revenues from gasoline taxes should not be used to finance roads and components of those revenues should not be diverted to public transportation. The American Association of State Highway and Transportation Officials (AASHTO) has too much influence over how highways are designed, which discourages innovation. There are too many government agencies and bodies involved in the decision to build new roads. And the influence of the Federal government is much too great. We should eliminate Federal government formulas for how highway funds are disbursed, Federal government subsidies of inefficient state projects, Federal government requirements that drive up labor costs, and political vote trading and earmarking of highway funds. The best way to accomplish all of this is to reduce the influence and power of the Federal government, restrict the power of the various state and local agencies and regulatory agencies, and repeal or restrict Davis-Bacon as it applies to road construction. Reducing regulatory power and influence is an important step toward eliminating regulatory inertia, which will make it easier for innovations such as drones and driverless cars to flourish.

2) We need to privatize the system as much as possible. Although not the ideal solution, allowing private contractors to construct roads or run concessions, i.e., maintain and manage roads privately in exchange for toll revenues, has likely worked better than the current system. The Dulles Greenway is a privately constructed and financed road in northern Va that has relieved traffic congestion. Like most private managed roads, it follows the regulatory model in which the government, specifically the Virginia State Corporation Commission, regulates the tolls that can be charged. Although a politically contentious process, the relation between the owners and the state government has reached an equilibrium and it seems to be working reasonably well. Other examples include the Indiana toll road, the Chicago Skyway, and the M6 in the UK.

A particularly important example is the French autoroute system, which was privatized by the French government in 2005. “A” roads are operated and maintained by private companies, which are granted concessions by the government. This system imposes the costs of the highways on the people who drive on them (including many non-French) rather than on the French taxpayer. I’ve driven on quite a few of the autoroute highways in France and think they are excellent when compared with US highways. For example, the Autoroute Paris-Rhin-Rhone (APRR) network is impressively run and maintained. If you’ve ever stopped at a French rest stop, “les aires d’autoroute,” they are much better than in the US. All of this comes at a price though. Tolls are high and it’s difficult to compare to the US system since the US costs are more opaque.

Although I think you see better highway technology and better maintained highways in France, you don’t see such things as congestion pricing or some of the really innovative technology that’s possible. So, ultimately, we need to privatize more fully. But we should mimic the French system of privitization of highways now, albeit with less regulation.

3) We need to experiment with the government selling highways to private companies rather than just granting to them a concession and then regulating them. We know that there are Australian, Spanish, and Italian private road companies who would be potential buyers (as well as some US companies, such as private toll bridge operators). The difficulty here, of course, is how to introduce competition so that these road companies do not have monopoly power. I don’t know how to do this, but I would suspect that the answer lies in driver “unions” that would collectively bargain with monopoly road providers for differentiated units of transportation services, which should be able to be resold on the market at market prices. And privatization needs to happen generally, so that consumers have alternatives to privately owned roads.

The political reality is that significant new government funding is not going to be raised for infrastructure development. Nor should it be, since the government’s record of spending that funding is poor. Deregulation and privatization, carefully implemented, can provide the additional infrastructure we need at a cost we can afford.

MMMMMM? Private toll roads?
In France the nuke power stations are government owned and operated and we know how they have failed multiple times and France is a radioactive waste land. Of course the failures in Japan, the US and the USSR were caused by over regulation. Snark Snark Snark.
Seems I have read of operators of oil refineries shorting maintenance till they blowup. By then the CEO’s who shorted maintenance are long gone with their bonus’ and golden parachutes. Could the same happen to private toll roads? Then again because of over regulation that fertilizer storage place in Texas blewup. Snark Snark Snark.
Just some idle thoughts.

Well, now, this is progress. Straight from the expert. Well done. Thank you both, Clifford and Menzie.

Let me return to a familiar theme: Winston writes:

“Unfortunately, the government has a status quo bias, which impedes the adoption of new technologies and slows economic progress. Fortunately, the private sector does not share this bias.”

This is the crux of the issue. Why does government have a different bias from the private sector? Winston is implying it has a different objective function.

And it does. The government’s objective function, as I have noted often before, is geared towards preventing Type I statistical errors (errors of commission), at the cost of Type II errors (errors of omission). This is the critique which Winston raises, as I interpret it.

So what do we do? We can accept that government has this sort of incompetence built in, and that the (classical) liberal critique of government is fundamentally sound. Or we conduct a bit of first principles analysis, better understand government motivation, and install a new objective function.

This is what I have proposed consistently for some time now. That’s what the FAA is all about.

Wow! You could knock me over with a feather! As I read I kept waiting for the “punch line” that never came.

Menzie, thanks so much for posting this very thoughtful article. Clifford, thanks for a very well thoughtout and reasonable article.

The elephant in the room though is politics. If we take a moment to understand, politicians are paid in votes and they acquire votes by spreading money around. The transportation bill is their checkbook, and it is this way for Democrats and Republicans. West Virginia has had more transportation money per capita than any state, Democrat. Alaska had the bridge to nowhere, Republican. Mississippi, one of the poorest states in the nation, isn’t poor in transportation money, Republican.

Here in my state there is a road that runs about 10 miles from a major highway to a politically important town. This road has been “repaired and improved” constantly for the last 50 years that I know of personally all by the same construction company. Other roads may have potholes but this road it pristine. The company resurfaces the road over a period of months from the highway to the town. When they get to the town back they go to the highway and start again. The construction company is a very “active” donor to political campaigns.

The transportation woes are not technical or due to a lack of reason. Transportation woes are there because they pay and pay well.

Your description of the greenway seems out of step with reality. Traffic congestion has increased even as tolls have skyrocketed and the original owners even defaulted. Most local residents here despise the road (in my experience) and many want the state to buy it back and re-publicize it.

That’s all true, but that doesn’t mean that the Greenway is a failure. The original owners were not professional road developers. They overestimated traffic and the government would not allow them to collect tolls that were sufficient to pay their expenses. Both problems have been corrected. The population of Loudon county has exploded and the state government is allowing higher tolls.

The opposition of some people to the Greenway is mainly about the cost of the tolls. Quite naturally, people want them to be lower and they want the government to use its regulatory power to benefit them at the expense of the road’s owners. But that’s what got the original owners in trouble. The movement to get the state to buy the Greenway is motivated by nothing more than a desire to get the general taxpayer to subsidize the cost of the road so that the people who actually use it and benefit from it can pay lower tolls. Also, local residents reason, if the tolls were lower, more people would be on Greenway and the public roads would be less congested. Thus, these residents want to use the regulatory power of the state to improve their own commutes at the expense of the owners of the Greenway and those who commute on the Greenway.

Hostility to the Greenway by some rent seekers is not an argument against it. It’s a pity that this rent seeking behavior is being spearheaded by Republicans.

“Unfortunately, the government has a status quo bias, which impedes the adoption of new technologies and slows economic progress. Fortunately, the private sector does not share this bias.”

to steven and clifford,
who pays for the mistake when it occurs? the public. in both time, money, and safety ( in severe instances life). if you want to argue this approach, you need to be able to better quantify the costs of these mistakes-otherwise your model is flawed. a bridge built with innovative new private sector designs ends up with a major flaw-because it deviated from historical designs that while perhaps inefficient, worked-and collapses 10 years into a 100 year design life. people died in the mishap, a major thoroughfare was shut down for months or years, and the structure needed to be rebuilt$$$. you need to show how you will minimize this event and account for its cost if you want to adopt your private enterprise approach without the status quo bias.

currently public funds are used to conduct infrastructure research, occurring over many years, to ensure the new designs are adequate. these designs are then approved into the design codes where private enterprise maximizes their use in design/construction. do you also want to privatize this area? or do we return to trial and error construction of past eras?

You were probably addressing Rick. I am personally not in favor of privatizing public goods, as a rule. It can certainly have a place, but as a classical liberal, I believe it is incumbent on the government to provide public goods like roads. These arguments are well known and feature in the front end of any basic econ textbook.

The issue, rather, is why the government is relatively poor at provision of public goods. As luck would have it, you yourself illustrate the reason. You write:

“who pays for the mistake when it occurs? the public. in both time, money, and safety ( in severe instances life). if you want to argue this approach, you need to be able to better quantify the costs of these mistakes-otherwise your model is flawed. a bridge built with innovative new private sector designs ends up with a major flaw-because it deviated from historical designs that while perhaps inefficient, worked-and collapses 10 years into a 100 year design life. people died in the mishap, a major thoroughfare was shut down for months or years, and the structure needed to be rebuilt$$$.”

The perfectly illustrates the Type I error prevention mentality. It’s all about preventing something that you shouldn’t have done. You mention not one item relating to not doing things that we should have. You are the quintessential voter, and the very reason why Rick wants to privatize roads and Clifford feels the government is useless in the matter of infrastructure. You are more worried about risk than reward, and as you cannot see the opportunity cost, you tend to value it at zero.

In a business, you need to balance Type I and Type II errors, the risk of doing something versus the risk of doing nothing. The outcome is measured in dollars. But since the average voter feels like you, the government is heavily biased against doing something, and far prefers doing nothing. And that’s because of statements and mentalities like yours.

You should not read this as a criticism, but rather as an underlying political reality for the voting body at large. And if affects not only infrastructure, but everything the government touches. If we were talking about the FDA, you’d be pointing out the risks of allowing ineffective or potentially dangerous (to a small minority) drugs to enter the market; whereas Rick and I would probably be emphasizing the invisible opportunity cost and the very visible cost of getting new drugs approved.

Rick wants to solve the problem by sequestering the assets, in essence, by removing roads from the government’s objective function and reallocating it to the private sector’s.

I have two problems with this. First, it is the very essence of government to provide public goods. That is literally what it is supposed to do. Privatization is merely the acknowledgement of failure, not a remedy to the underlying problem.

Second, the issue of government incentives affects more than just infrastructure. Therefore, my interest is in aligning the incentives, rather than moving an asset class from one actor and putting it under another. Like Menzie, I believe in government. However, unlike Menzie, I believe people in government will do what they are paid to do. If they are paid to heed Type I errors–as you bid them–then that’s what they’ll do, and you can sit in traffic on the Connecticut Turnpike as long as you like.

I have written about the FAA any number of times. It, in turn, derives from the Three Ideology model, about which I have also written numerous times. And this in turn identifies a non-market failure in the objective functions of government, which has direct bearing on both the FAA and Clifford’s central insight: that government really doesn’t care much about making things better.

We can materially solve this problem. Our best opportunity now is to test an FAA with Honduras and El Salvador, upon whom we could (with the IMF) easily foist such a system as the price for US support. We need not try out it at home first, as voters like you would not have the courage to line up behind it.

steven,
“You are the quintessential voter, and the very reason why Rick wants to privatize roads and Clifford feels the government is useless in the matter of infrastructure. You are more worried about risk than reward, and as you cannot see the opportunity cost, you tend to value it at zero.”

actually i speak from experience, having designed and built items in the public environment. the public has a trust in its infrastructure, they expect it to work and be safe. failure in this condition is really not an option. this is fundamentally different from the expectation of private works, where the consumer is much more aware of the risk taken on at the expense of profit for the producer. you say i value the opportunity cost at zero-not true. but i probably place a much higher value on the life of the public in the case of failure than you do. but this is probably due to the fact i actually must bear that responsibility when i build something. it is simply an academic exercise when you talk about it behind the desk but do not bear the responsibility yourself. i agree with you a better model for incentives should be created. but i also think you will view it differently when the liability applies to you personally-including living with the responsibility of somebody else’s life or death. bankruptcy is not the risk equivalent of loss of life.

If I believed you, Baffs, aircraft would be manufactured by the government and operated by the government. So would nuclear power plants. So would hospitals. And automobiles.

And who builds those roads, by the way. The private sector.

“but i also think you will view it differently when the liability applies to you personally-including living with the responsibility of somebody else’s life or death. bankruptcy is not the risk equivalent of loss of life.”

That’s exactly the point I’m making. You place zero value on opportunity costs. In reality, you don’t have the opportunity for absolutely safety. It’s all about trade-offs, and your trade-offs involve only Type I errors.

In the private sector, you have to produce more resources than you consume. And that means figuring out how to do something efficiently, and managing–rather than avoiding–risks. In the public sector, it doesn’t matter if you destroy capital, because i) it is money taken through coercion from taxpayers, and ii) you’re not paid for creating more value than you destroy. Absolutely. You have made the liberal critique of government.

steven, roads arebuilt to design codes-adopted and overseen by the government. it is a government approved design.

“In reality, you don’t have the opportunity for absolutely safety.”

in reality you must require safety to be the number one priority. profit cannot interfere with safety of the public infrastructure. if we better value our public infrastructure, this would not be a problem. but we encourage the belittlement of our infrastructure in a way that devalues it, and people walk away thinking the cost to build something should be half of what it really costs. this screws up the economic analysis henceforth.

I’m not sure that we really disagree about whether government should provide public goods. But I think we may disagree about whether roads are public goods.

Roads are not public goods. Public goods are “non-rivalrous,” meaning that if I consume the public good that doesn’t mean that you can’t also consume the public good. Public goods are also “non-excludable,” meaning that no one can be excluded from consuming the public good. A classic example is defense. I can benefit from defense of the US and the fact that I benefit does not prevent you from benefiting as well. Also, neither you nor I can be excluded from benefiting from defense if defense is provided.

The justification for government’s provision of a public good is the free rider problem. Since public goods are non-rivalrous and non-excludable, I can benefit from the public good without paying for it. Since everyone has that incentive, public goods will tend to be underproduced, which provides a justification for government production, since governments can solve the free rider problem by means of compulsory taxation.

The justification for government production of roads is that roads are a natural monopoly. But even if they are a natural monopoly, another way to produce roads is to allow private entrepreneurs to develop them under regulatory supervision to prevent monopoly pricing. The regulatory model is generally how private road development has operated. The French highway system is one example.

My argument is that the regulatory model is likely better than government provision, provided the regulation makes sense. Government failure is worse than market failure so better to have roads privately produced and maintained. However, the original regulatory experience with the Dulles Greenway toll road shows how bad regulation can cause private roads to fail. The original owners of the Dulles Greenway were forced to declare bankruptcy and regretted ever getting involved with private roads. Even though Virginia had passed a law designed to encourage private roads, the regulatory structure and behavior was not consistent encouraging private roads, at least in the beginning. Today, there is still tension, but there seems to me to be an equilibrium in which government permitted tolls are sufficient for the Greenway to continue.

Historically, roads in the US were produced privately. It was only later that the government made major incursions into road building, notably during the FDR and Eisenhower Administrations. Perhaps the most famous example was the Lincoln Highway, which was built about 1915 and connected NYC and San Francisco. Proposed by entrepreneur Carl Fisher, it was built with private money that Fisher raised. (Fisher also built the Indianapolis Speedway in 1909.) You may be interested to know that route 27, which runs right into Princeton and becomes Nassau Street, was part of the Lincoln Highway. Thus, route 27 was originally a private road built by private funds. Route 27 is still called the Lincoln Highway in some sections. Route 30, which goes west from Philadelphia, was also part of the Lincoln Highway.

OK, but we still come back to the quality of governance over the owners of the roads, ie, the regulatory structure as well as the practicality of private ownership.

If each street in Princeton were privately owned, it would be something of a potential mess in terms of maintenance levels, surface quality, billing etc. (Having said that, Faculty Road, which runs between the University and Lake Carnegie (the one in the “House” credits) is owned by the University and maintained by them, although it is one of the major public roads of the Township. On the other hand, God comes to Princeton when he’s short on cash, so maintenance is pretty good. And I am one of the free riders on that road.)

Major highways, which can be privately financed and run as toll roads are potentially fine, but these tend to have the character of monopolies. I tend to nurture lingering resentments about my treatment by monopolies.

Finally, tolls themselves can be disastrous. You can sit in traffic for an hour entirely due to the tolls at the GW Bridge. More privatization, it seems to me, would mean more tolls, and ceteris paribus, this is a bad thing in my experience.

At the end of the day, building, maintaining and operating roads is not that big a deal. I am not one of those who maintains that government is bad, so let’s just junk it. I am one of those who say that government has three objectives functions, all legitimate at some level, which need to be managed through the explicit use of incentives plans which unify the agent (the policy-maker) with the principal (the politician). Thus, my model of governance is materially different from that which exists anywhere outside Singapore. It’s Democracy 2.0, if we want a slogan.

Maybe I’ll get that book out (if I can find financing). Meanwhile, I have another book to finish, so back to work.

so exactly why would any consume pay to go to buy any thing at a store? thats exactly what we do when we pay a toll to drive to it. th eproblem we have seen with transportation isnt that there has been a lack of interest in new technology, as that there is little money to do more than keep things going and even that is failing. the federal gas tax was last changed in 1993. that about 21 years ago. and while some cars get better gas mileage, there are actually more of them now that back then. consider just one metro area,. dallas – fort worth. it was about 2 million people then, its now over 5 million. so there are more cars now than then. and the price of every thing has gone up in the last 21 years. but we dont have the ability to deal with it any more. but oddly enough, those that built the interstates were poorer than we are, and a smaller country, but they figured out how to do it,

cliff winston,
i agree there are technologies which could be beneficial. the problem is many of those new toys work assuming the infrastructure is operating evenly at this time. the government cannot afford to implement new tech, because we have underfunded our infrastructure over the past 30 years, leaving it in the current state of disrepair. even private enterprise cannot be effective working off of the current conditions of our infrastructure. you need to deal with these structural deficits before you will gain any benefit to the efficiency ideas you present. working with a road under load restrictions is not really solved by gps rerouting. it is fixing the restriction that is of primary importance-that is where your biggest efficiency improvement will be made.

you say “The best course of action is to rely on the private sector to develop technological advances in the major modes and for the government not to impede those advances. ”
first you need to spend the money to make the infrastructure reliable. then you need additional money to deploy these advances. states are short of cash for routine maintenance, which is why you see them rarely risk funds on unproven technology. it is a two step process.

The likely future at this point with Peak Oil and overshoot bearing down on us is the ongoing evolution of the imperial corporate-state to a privatized corporate-state (think “Elysium”) owned by the top 0.01-0.1% and administered by the next 0.9% financiers, technocratic managers, techno-scientific elite, and the like.

Prepare for private toll roads and Third World-like gated and walled enclaves only the top 1% can afford; “enclosing” of the coast lines, national forests, farmlands, and waterways; defunding of the social welfare-state; breathtaking automation and elimination without net replacement of paid employment in the services sector, including medical services, education, retail, and gov’t (fastest-growing sectors since the 1980s and most susceptible to intelligent-systems disruption hereafter); and a growing share of economic valued-added output/exchange occurring between the Fortune 25-100 firms and the federal gov’t.

In the meantime, a once-in-history corporate consolidation of capacity across industry sectors is ahead, resulting in mergers, spin-off of assets, elimination of lines of business, firing (attrition without replacement) of tens of millions of workers, and the predictable results for the labor market and drawdown on gov’t resources by the unemployed/underemployed, elders, sick, and those in poverty. The more poor, uneducated migrants flooding into the country, the worse the degree and persistence of stressors will be.

As economic prospects worsen for a growing majority of Americans, the more likely we will experience racial/ethnic/religious conflict and violence, growing loss of faith in institutions and “rule of law” (to which the top 0.1-1% are not subject), increasing non-compliance regarding taxes, licensing, insurance, etc., and the more likely the gov’t will engage in surveillance (“TIA”) and police-state tactics, becoming increasingly reactionary, restricting liberties, and becoming more removed from the common person’s needs and everyday concerns. Eventually, gov’t will become something “done to people” rather than a service “for people”.

1. Privately built toll roads are government grants to well-connected people, meaning “crony capitalism” in which the state overrides local objections and often condemns private property for what is then called a “private” toll road. It’s a method for out-sourcing but it’s unclear if it saves money is more a gift to political business friends.

2. As for technology, no one looks to government to generate new technology but rather looks to government to enable it to work. An example: toll technology has existed for a long time to allow reading transponders at highway speed but very few places have put them in. Why? One reason is personal liberty: are we going to require people to pay for transponders or to put up a deposit? (And not all people have credit cards.) And then the state has to determine how to handle people who don’t have transponders. Private business can make doing that possible: as in NH, where they take a picture of your license plate and send you a bill. There has to be legal authority to do that and there are significant questions about doing this on a very large scale. Remember NH is small and has one major toll road with one toll station (and you can drive through the center lanes at 65MPH under a transponder reading device). Another reason is that states would rather see how it works in other places before doing it themselves. That’s natural: companies can experiment and throw away mistakes but governments tend to be stuck with them and the public gets mad about what they consider waste. So it takes time and is more complicated than technology can do x or y. MA has switched to the NH style system for a single toll bridge into Boston but it’s unclear how much money they’ll lose from people not paying and avoiding payment – and then we will of course get the “horror stories” of some guy who can’t renew his license because the system says he owes for tolls.

I’m left scratching my head wondering who exactly is this dullard and slothful “government” that is impeding technological progress? We’re treated to a vision of some lazy bureaucrat shuffling papers from one inbox to another, and who only works overtime to figure out ways to accomplish even less tomorrow than he did today. If there’s a problem with “government” there must be a problem with voters. Anyone who has ever worked in government knows that the problem with bureaucracies isn’t that they are prone to doing too little, it’s that that are prone to doing too much. Expanding mission and scope is how you go about empire building in a bureaucracy. The reason we don’t have a proliferation of technologies has more to do with opposition by voters than it does government bureaucrats standing in the way of progress. If you’ve got a dumb Congress that won’t step up to it’s responsibilities, it’s a good bet that you’ve also got stupid, clueless and easily manipulated voters re-electing the same clowns every two years.

The history of privatized infrastructure has not always been a happy tale. For example, 19th century railroad expansion was led by the (largely British) private sector. Typically this kind of thing leads to boom/bust cycles. We saw a similar pattern with the explosion of private internet expansion during the 90s. Boom, then bust. What makes this especially bad is that a boom/bust cycle linked to privately owned highways would quickly become a pro-cyclical problem. One good reason for reserving highway and bridge construction for government is that it provides a counter-cyclical tool. Private toll roads would see less construction work during a recession and more construction work during an expansion…exactly the opposite of what you would want to see happen.

When we talk about infrastructure spending there is a tendency to only think about roads and bridges, but we forget that a lot of goods travel by water. The lock-and-dam system up and down the Mississippi is in pretty rough shape. And getting back to my comment about the problem with government being a tendency to do too much rather than too little, one of the complaints against the Corps of Engineers has been that its plans to improve the lock-and-dam system was too ambitious, too gold plated, and had too many high tech features. It was voters, Congress and the GAO that balked about the ambition of the plan. Left to its own devices the Corps would have built a world class (and equally expensive) lock-and-dam system in the upper Mississippi. And then there are US ports. Only one major port is being outfitted to handle the next generation of super cargo ships. So this could and should be another infrastructure project for Steven Kopits’ beloved New Jersey. The obstacle here isn’t government standing in the way of progress. Voters only have to look in the mirror if they want to blame someone.

One problem: the main impediments to stream-lined permitting for solar are other companies fighting that. I mean explicitly the power companies. The government is caught between business interests and the public interest. It’s a fairly complicated debate, one we’ve been having in MA: as we look at renewing solar incentives, the utilities are saying they have a $$$ interest because they are responsible for maintaining an infrastructure that benefits both private businesses and the public. They want limits on the number of connections. They want limits on when power can be sent back into the grid. They want different forms of metering. They want assurances. They want to know why they have to pay – literally in MA – to develop companies that hurt them. It isn’t just a simple, “Oh that government standing in the way”; it’s more business standing in the way and government doing what bigger business wants.

Re: “solar advocates estimate that the delays involved in obtaining permits can add between $1,500 and $3,000 to the cost of a typical solar system for a modestly sized home. ”

Not in California. I laughed when the country building department inspector came to sign off our installation. He took one look and said he didn’t do roofs and signed off the work. Damned government over regulation!!!!!

It seems to me that 2slugbaits has it exactly right. (Nothing unusual there). But I wonder where this 1500-3000 figure comes from. Why do the delays cost money. If you know there will be delays it should be built into the process. Surely the workmen aren’t standing around at the building site waiting for permits. They schedule their work when the permits are there. This of course doesn’t mean that the process couldn’t be streamlined. But the proposed solution, if I understand correctly is to override local democracy – exactly confirming 2sulgbaits point about the problem being the voters (who presumably are either not bothered enough to throw out corrupt officials, or are reflecting public antipathy to unsightly constructions in the neighbourhood.)

well if we want private roads, then they need to pay for all of it, land, construction. every penny is theirs to pay/ nothing is stopping them now. they can buy the land. they pay to build it. and run it, and they can then receive the tolls.

Duraacomm You might want to read the article a little closer. The story was about a proposed bill in the legislature, not some braindead bureaucrat impeding progress. The story is about vested big business interests (you know, the ones typically sopported by the GOP) standing in the way. As I said before, the blame lies with voters.

Resistance to change comes about because of competing vested interests. You get the same resistance based on vested interests regardless of the private/public status of the agents. I work for the govt and I can thimk of plenty of examples in which the private sector fought hard to block changes in regulations that would lower costs and produce value for the taxpayer. Privatizing things like highways, bridges and airports does not eliminate resistance to change; it just changes the name of impediment.

BTW, I get a kick out of reading all these posts from conservatives who opposed the ACCA and argued against change and for the narrow interests of private actors with a vested interest in the status quo. Almost by definition conservatives oppose change and argue for the status quo. But notice how quickly they change their tune when they see an opprtunity to corner monopoly rents via a sham “privatization” scheme…excuse me…the preferred term of art is a ” private/public partnership.”

The bill is being proposed because the existing regulations and bureaucrats implementing them are substantially impeding progress in solar power installation.

Regarding your comments on private interests opposing regulatory changes that is a good example of regulatory capture. Bigger regulatory state increases motivation, opportunity, and profitability of regulatory capture.

Poster Rick Stryker made a lot of comments regarding public goods that, while not exactly wrong, are at best incomplete and at worst misleading. Highways are generally considered “quasi-public” goods. A pure public good is non-rivalrous, which means, as he says, that my consumption does not impede your consumption. And from this Rick Stryker concludes that public roads are not public goods because there is such a thing as traffic congestion. The problem is that a pure private good means my consumption doesn’t just exclude your consumption, it means my consumption forever excludes your consumption. And there’s a big difference. There is a temporal element. If I eat a loaf of bread, that bread is gone forever. But if my car occupies space on a road, that occupation is transient. An hour later the road may well be clear and you can drive unimpeded. So roads are “quasi-public” goods because the rivalrous nature of consumption is only a special case and is usually transient. A pure private good is private in both spatial and temporal dimensions. A pure public good is non-rivalrous in both dimensions. A quasi-public good is non-rivalrous in at least one dimension. This has big implications for the way we evaluate the benefits of quasi-public goods like roads. If roads were purely private goods, then we would evaluate the benefits by horizontally summing the individual demand curves of everyone who wanted to drive. But this would be suboptimal and would lead to too few roads being built. The right way to evaluate the benefits of a quasi-public good is to vertically sum individual demand curves. And that’s why we have government economists; it’s what they do.

Now none of this says that the government is providing the right amount of highway goods at the right price. But it’s important to keep in mind that contrary to what the man-on-the-street typically believes, the bias of government is to build too many roads and not charge enough. The bias of the private sector is to not build enough roads and to charge too much. The usual critique you here is that privatization will give us more roads at less cost. This completely and utterly wrong. One thing to keep in mind is that if the owners of newly privatized roads were simply making honest mistakes about the costs of maintaining the roads they inherit from the public sector, then we would expect about as many requests for cost reductions as we see requests for costs increases. In other words, we would not expect to see any bias. But that’s not what we see. It’s almost never the case that owners of privatized toll ways ask for rate reductions. That tells us a lot.

Historically the gas tax was supposed to fund highway construction. But that tax has not kept pace with inflation and is too low. We have stupid and myopic voters. There is also the problem of greater few economy producing less revenue. If you’re a cynic you might believe that those pushing for more privatized toll ways see this as an opportunity because poorly maintained public roads will drive people towards less poorly maintained privately owned toll roads. Some of us don’t think it’s a coincidence that the state of Indiana has been systematically and deliberately degrading the maintenance of public roads (e.g., the physical destruction of rest areas, half-hearted efforts at snow removal, etc.) in order to drive people towards toll roads. My recommendation is that instead of government policies that try to restrict choices between badly maintained public highways and badly maintained private toll ways, we should work towards more transportation choices that don’t involve either public or private roads.

No, there was nothing misleading or incomplete in what I said. Roads are not public goods. And the economic problem that arises in the provision of roads is that they have characteristics of natural monopolies.

I did not want to go into a digression on how to classify roads in my earlier comment. I know some people use the term “quasi-public good” to describe goods that are non-rivalrous but excludable. However, I prefer the term “club good,” since these goods were first analyzed by James Buchanan in An Economic Theory of Clubs. Club goods do not have to be supplied by the government and we know many examples that are supplied privately, e.g., swimming pools.

I admire Rick Stryker’s quasi-religious belief that a regulated private sector provision of a natural monopoly would be more efficient than a government provided (perhaps priced) one: “even if they are a natural monopoly, another way to produce roads is to allow private entrepreneurs to develop them under regulatory supervision to prevent monopoly pricing. The regulatory model is generally how private road development has operated. The French highway system is one example. ” There are, to my knowledge, no theoretical results that would support this. If we assume that governments have the appropriate information to regulate a sector efficiently, why would government not be able to provide the service efficiently to begin with? Bureaucratic inefficiencies, if they exist, would surely be as much a problem in a regulatory agency as in a transportation department. Add to this the inefficiencies introduced by lobbying and rent-seeking and the whole privatization issue seems even more inefficient.

As to empirical evidence: sure, the privately-owned French motorways are very nice, but so are the publicly owned German, Dutch, Swedish… ones. The big difference to the US is not that European infrastructure is privately owned, but that Europeans understand that stuff costs money. Also, check our how well railway privatization has worked our for the UK, or think about the privately owned cable networks (similar in nature to roads) in the US.

This is not religious belief. I am advocating very light touch regulation so that roads and other infrastructure are essentially privately supplied, subject to environmental restrictions, enforcement of contracts, etc. Although there is no theoretical result that this must necessarily be better, there are theoretical results that indicate that it may well be better. Clifford’s 2011 Journal of Public Economics article with Jia Yan Can Privatization of U.S. Highways Improve Motorists’ Welfare? provides some analysis, for example.

In my opinion, the privately maintained highways in Europe are better than the public highways. German and Scandinavian highways remind me of US highways. But the private toll roads are really a cut above. As you may well know, Spain and Italy also have private highways. The AP-7, which runs up the eastern coast of Spain into France is a joy to drive on. Also, the autostrada A4 that connects Milan and Venice is another really nice road. (Driving into Venice gives you a different perspective, that’s for sure.) The interesting feature of the A4 is that different companies have a concession to maintain it along different sections.

stryker, these private roads are subsidized by the government. public road systems provide a feeder system to the private network-they are subsidized. let all roads be privatized and toll-the system will collapse because the private approach will not keep the feeder system working. it is a public good whether you like it or not.

from what I can gather, the paper you cite compares the status quo with a case where drivers bargain with a private sector company over prices and capacity of a road and find that under certain circumstances this yields higher consumer surplus. In other words, some kind of congestion pricing is better than none. Despite the authors’ claims, this does not at all imply, that private is “better” than public ownership, as surely the government could also implement a congestion pricing scheme. On the contrary, a government entity maximizing consumer surplus should give (weakly) higher consumer surplus than a private sector entity maximizing profits subject to constraints. An example of public congestion pricing would be the London congestion charge.

from what I can gather, the paper you cite compares the status quo with a case where drivers bargain with a private sector company over prices and capacity of a road and find that under certain circumstances this yields higher consumer surplus. In other words, some kind of congestion pricing is better than none. Despite the authors’ claims, this does not at all imply, that private is “better” than public ownership, as surely the government could also implement a congestion pricing scheme. On the contrary, a government entity maximizing consumer surplus should give (weakly) higher consumer surplus than a private sector entity maximizing profits subject to constraints. An example of public congestion pricing would be the London congestion charge.

“German and Scandinavian highways remind me of US highways. But the private toll roads are really a cut above. ” That is because they underused and exclude the less well off. This is like the private solution to health insurance. Cut down waiting times by removing support for the riff-raff.